In perhaps the worst kept secret in venture history, SecondMarket and AngelList have teamed up to allow accredited investors to legally invest purely online on AngelList for the first time. Basically, it’s getting a head start on the JOBS Act while we wait for it to become law. It’s a far more conservative — and legal — approach than other early crowdfunding efforts like FundersClub, because SecondMarket is an actual broker/dealer.

We got a preview of this last week, when we wrote about Transcriptic’s wild seed round — the first company that used the partnership to round out its already successful, mega seed round. Founder Max Hodak described the experience by saying, “The Internet was just trying to throw money at us.” He added, “I don’t know what (AngelList co-founder Naval Ravikant) and SecondMarket are doing but they are clearly where the money is.”

Not every company will have such a barn-burner of an experience, but SecondMarket and AngelList are trying to replicate what worked in that case. Like Transcriptic, they are handpicking only companies that have a strong, well-known lead investor already, an easy to understand business, and some sort of momentum.

Companies will have to be transparent with their numbers, which not all companies are comfortable doing. Right now, only five companies have been approved to use the platform, and they can’t be named because the ban on general solicitation is still in force. (Something most companies ignore every time they step on stage at a conference.)

The rounds will typically be in the modest $150,000 range, although Transcriptic raised $500,000 and got a good deal more than that offered. Right now there are five deals live with about $400,000 in commitments. If the $150,000 target isn’t raised, the round doesn’t close, and the funds aren’t collected. That’s because the administration of this costs money, and AngelList and SecondMarket are basically absorbing those costs to offer this for free for both companies and investors.

The two are really aiming this service at people who haven’t done angel investing before who may just want to invest $1,000 or $2,000, as opposed to the more typical angel check of $20,000 or more. Those sizes are too small to justify the hassle for a company, but SecondMarket essentially lumps them all into one fund, so the company has one extra investor, not, say 50.

Ravikant and SecondMarket’s chief strategy officer Jeremy Smith both emphasize that investors should back a whole range of these companies if they expect to make money. Early stage companies are inherently risky; the more you back, the more likely you will hit on something that works. And because the investment sizes are so much smaller, most accredited investors can afford to place a few bets. That means you learn how to invest and what to look for quicker than putting out $20,000 at a time, Ravikant says.

SecondMarket and AngelList have both been on the bleeding edge of opening up venture capital-style investing to non-professionals. AngelList has historically done it on the seed end, while SecondMarket was a pioneer in helping companies get pre-IPO liquidity. Still, of those groups both AngelList and SecondMarket have been relatively conservative compared to others pushing for democratization and change. AngelList has refused to push legal boundaries, and every time a company set some sort of new record of fundraising on the site, Ravikant skips the fist pumping and says he just hopes the company does well.

In fact, Ravikant is clear to emphasize this partnership is not actually crowdfunding…yet. It just looks a lot like it. But as the laws change, it will expand into something broader that can include more startups and more investors.

Meanwhile, SecondMarket has sought to distance itself from many of the dodgier secondary exchanges, by specializing in marketing securities with a startups’ approval, done in a highly-controlled way.

Both are aware of the stigma and the risks of opening a controlled, risky world up too fast too quickly. Both know companies will inherently fail. Investors — no matter how carefully they educate or vet them — will be pissed. There will be a backlash at some point.

Some companies won’t even be able to close their rounds, most likely, Smith says. Again, no matter how carefully they are hand-selected, this is a market, and there’s always an imbalance between people seeking liquidity and what potential shareholders want to buy. Just ask so-called “below the fold” companies who couldn’t quite go public and were trying to get buyers, while pre-IPO Facebook shares were all anyone wanted to trade on secondary exchanges.

Something like this has been a long time coming for AngelList. Ravikant has a very long term vision of where he wants to take his company, as it strives to solve every problem that befuddles entrepreneurs — whether that’s finding investors, finding developers, or dealing with annoying legal paperwork. While many of those verticals have been successful for AngelList, the real prize has been actually moving the fundraising process itself online. It was a vision Ravikant was obsessed enough with, he actually went to Washington and changed the law.

He discussed that bizarre and amazing process with us last November:

Ravikant assumes that democratization of investing is inherently a good thing, but not everyone agrees. Many investors see this as a threat to proprietary deal flow — their bread and butter historically. Others just pooh-pooh the impact of AngelList, saying it’s only companies that can’t raise money elsewhere that use it. Indeed, there is no shortage of angel funding in the Valley.

But Ravikant argues that as long as you democratize the market on both sides — in other words offering more options and transparency for both startups and investors — more choice is good. Whether VCs like it or not, this is the way the funding world is moving. And the reality is AngelList is one of the more conservative players pushing the agenda.

Sarah Lacy is the founder and editor-in-chief of PandoDaily.
She is an award winning journalist and author of two critically acclaimed books, "Once You're Lucky, Twice You're Good: The Rebirth of Silicon Valley and the Rise of Web 2.0" (Gotham Books, May 2008) and "Brilliant, Crazy, Cocky: How the Top 1% of Entrepreneurs Profit from Global Chaos" (Wiley, February 2011).
She has been covering technology news for over 15 years, most recently as a senior editor for TechCrunch.

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